Julia Wang

Julia Wang is the Editor-In-Chief and VP of Content at Value Penguin. Julia is responsible for overseeing content that helps consumers understand the value of personal finance and be the resource they use to make better financial decisions, big and small. [...]


Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Andi Last

Andi Last brings over 30 years of broadcasting, media, and marketing experience to Pure Financial Advisors. She is the producer of the Your Money, Your Wealth® podcast, radio show, and TV show and manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
December 18, 2018
Julia Wang of Value Penguin - Your Money, Your Wealth® interview

Julia Wang from ValuePenguin.com tells us which holiday scams are all the rage this season – and how to be smarter than the scammers. Joe and Al answer questions about Roth conversions, Medicare premiums, RMDs, and taxes; doing a 1031 exchange for rental real estate when you don’t really want the property, and what your financial bucket list should include before you retire.

Listen to the podcast on YouTube:


Show Notes

  • (00:47) Julia Wang: Avoiding Holiday Scams (part 1)
  • (10:46) Julia Wang: Avoiding Holiday Scams (part 2)
  • (21:43) My Roth Conversion Strategy is Complicated by Medicare Premiums and RMDs
  • (37:55) Email – I’m Doing a 1031 Exchange But the Property I’m Buying Is Priced Too High. What Are My Options?
  • (45:45) What Should Be On My Financial Bucket List Before Retiring?


Today on Your Money, Your Wealth, Julia Wang from ValuePenguin.com tells us which holiday scams are all the rage this season – and how we can be smarter than the scammers. Plus, Joe Anderson, CFP® and Big Al Clopine, CPA answer questions about Roth conversions, Medicare premiums, RMDs, and taxes; your options when doing a 1031 exchange for rental real estate that you don’t really want, and what your financial bucket list should include before you retire. I’m Producer Andi Last, and while Joe and Big Al have been doing this show for many years, this marks my 200th episode being a part of the Your Money, Your Wealth® podcast – happy anniversary, everybody! I’m so happy to be here with you. Let’s talk scams!

:47- Julia Wang – Avoiding Holiday Scams (part 1)

Joe: Big Al Clopine is out of the studio. So, Andi, it’s you and I once again.

Andi: That means it’s you and me, Joe.

Joe; That’s it, honey. This is gonna be fantastic. I’m very excited about our guest today. ‘Tis the season.

Andi: Yes indeed.

Joe: We have Julia Wang. She’s the Editor-in-Chief and VP of Content of Value Penguin. Do you ever go to Value Penguin, Andi?

Andi: I have been lately, I’ll tell you what.

Joe: You did a little recon work?

Andi: Absolutely. Because they are giving content to consumers to help us understand the value of personal finance and to be the resource that we use to make better financial decisions, big and small. So there’s lots of great information on there – and our guest is Julia Wang.

Joe: Yes. Julia welcome to the show.

Julia: Thank you for having me. Joe and Andi.

Joe: Hey, I want to talk about holiday scams, because there’s a lot of really bad people out there that should be on the naughty list.

Andi: It seems like this stuff is ramping up doesn’t it?

Julia: It’s true. And you’re right, they should be on the naughty list. I mean, this is a wonderful season. People are celebrating, it’s a happy time, but it’s also a season where holiday scams are on an uptick, because scammers know that you are busy, you’re stretched in many different directions, you’re shopping entertaining family and friends, and you’re busy with last minute preparations-  and this is exactly what scammers are looking for to prey on potential victims.

Joe: I was teaching a retirement planning course this week and it was on taxes. And I was like, “Hey, do you guys have any questions before I get started?” And I think the first, like, 15 questions were on scams!

Andi: Really?!

Julia: Wow.

Joe: It was like, okay well we could just talk about scams. You gotta listen to Julia Wang on my podcast! Brian Perry, Julia, he’s our Director of Research. He’s a very smart individual, and he was planning a trip for Christmas to go to Jackson Hole, Wyoming. And his wife was on “Airbnb” I’m gonna say in quotes. And they found this mansion for like $400 a night that had an indoor swimming pool, and he’s like, “you know what? That kind of seems a little cheap.” But they looked, she looked it up, said it was good, he looked at it, said yeah let’s do it. And then all of a sudden when it was time to pay he had to wire the money. He thought that was kind of odd. So he wires the money and then he finds out it’s not Airbnb it’s a scam. And so he’s out five grand and out of a place to stay on Christmas.

Julia: Oh, that is terrible to hear. And you’re right, there are many of these types of copycat sites that inundate you, whether you’re going to a copycat site yourself, or you get a lot of marketing promotional emails during this time. And so you want to be careful because these copycat sites are looking to get personal information from you. Whether that is credit card information, or they’re looking to have you click on a link so that they can install malware onto your computer. So we always say, you want to take a close look at who’s sending you the email. Click on the icon to see whether that person’s email address is truly from the site that you are intending to go to, and you want to check for misspellings or other types of mistakes. Like maybe Airbnb was really Airbnc. (laughs)  And then when in doubt, you can always open up a browser and type in the web address yourself to double check, because these mirror sites are put up very quickly by scammers. They look like the real thing, but there are little telltale signs that show that they are not real. And if you’re going to an e-commerce site to shop, you should always look for the HTTPS in the address, which signifies that it is a secure page, and you want to look for the little padlock icon next to the HTTPS, which further says that this is a safe site.

Joe: Are there different colors? Because sometimes I see green and then red, or I’m just making that up?

Julia: You are right, and you’re not making that up, sometimes on my browser as well, in the URL address, it’s sometimes green. As long as it has a little padlock and it says the word “secure” and you see the HTTPS, that is likely a very safe site.

Joe: What about charities. You know, people like to give a lot during this time of year. I mean, we had a lot of tragedy here in California with the fires. And it’s hard to tell – people want to give, but then there are so many different you know scammers in that area too.

Julia: You’re right, Joe. And there are. And this is what scammers are preying on is the fact that people have generousness of spirit around this time and they want to help. Not to mention that you can get a nice write-off, tax write off, if you make that donation before December 31st, but the scammers are looking to take that money and use it for other purposes. A recent example was one charity called Help for Vets took in $20 million between 2014 and 2017 before getting caught by the FTC.

Andi: Oh my gosh.

Julia: Yeah. So they were just using it and not giving it to actual veterans. So we always say to look out for sound-alike charity names, and if you want to check whether that charity is legitimate go to Give.org, which is a website that maintains a list of legitimate charities that you can give to. And if you don’t find a charity that you want to give to on that site, we recommend that you skip it and find something else on that site.

Joe: Give.org. It’s kind of disappointing, you have these smaller charities too that are trying to do really, good boots on the ground work. And it’s like, “OK well here, do I know if you’re really legit or not?”

Andi: Right. You’ve got to do your due diligence. Gotta do your research. Now to talk to us about part-time work – what is happening with seasonal work with the holidays?

Julia: Yes. This is a great time to pick up some side hustle jobs or seasonal work, but you’ll also come across a lot of sites that are fraudulent recruiters that want you to actually shell out money first to get access to these jobs. Now, there are plenty of job platforms out there where you don’t have to pay money in advance to see what job listings there are. So we always recommend that you go to the legitimate sites where you don’t have to pay any money upfront in order to see the jobs. And so you definitely want to be careful if anyone’s asking you for money. We’d say skip it and go to another job platform.

Joe: So I’ve got to pay to get a job.

Julia: Yeah exactly. Imagine!

Joe: I actually paid a lot to get this job. (laughs)

Andi: Did you? (laughs) And here you still are! (laughs)

Joe: It’s the best scam in the world. (laughs)

Andi: I was really surprised to hear that attempted package delivery can be a scam? How does that work?

Julia: This is a big one. So have you ever gotten in your inbox an email saying, “hey, you have a shipping notification,” but you’re not quite sure what shipped or when you order something? So in those instances, you should be very careful, because this is very similar to the copycat site scam, where scammers are using fake shipping notification emails to try to lure you to click into a site that collects your personal information and sells it on the dark web or gets you to download malware onto your computer. Sometimes it’s a physical note that’s left on your door that you have to call a number to get your package. Again, I would be very wary to call, because sometimes they say you have to pay extra money, or they’re trying to fish for additional information, such as your credit card information, date of birth, Social Security, or address. So you should never give that out.

Joe: You know, that’s crazy. That must work all the time.

Andi: I was going to mention, I think we’ve actually gotten those e-mail notifications here at the office.

Joe: Who doesn’t want to get a package? It’s like, “Oh, someone loves me.” (laughs) What are grandparents scams? Someone scamming Grandma and Grandpa?

Julia: Grandma and Grandpa. So the seniors in your life should definitely be alerted to this. This is called the impostor scam, where they know many of the senior citizens still use phones and they still answer their phones, rather than text. So scammers pose as their grandchildren, calling saying that they’re in distress, and money needs to be wired right away. So the problem with this is that grandparents who do get suckered into paying for this, they’re oftentimes out an average of $9,000 because they are preying on emotions.

Andi: Oh my gosh. Because they love their grandkids!

Julia: They love their grandkids. So in this instance, we say, for the grandparents out there, to never send any money in advance, but to double check and verify with other family members where your grandchild is because these scammers can get a lot of information on social media these days. They know who you’re related to. They can see where you’re taking a vacation. So we say be careful what you share on social media. Because scammers can take those little bits of information and craft a very compelling story to try to scam you.

Andi: And really, that should go for any of us. Be careful what we post online. That’s not just grandparents.

Julia: That’s right.

Joe: You know that actually happened to a buddy of mine. They said that he was trapped in Mexico and needed some cash.

Andi: Wow.

Just real quick I want to mention, for a transcript of this interview and links to relevant articles on all these different holiday scams, visit the show notes for this episode at YourMoneyYourWealth.com.

The Top 8 Holiday Scams:

10:46 – Julia Wang – Avoiding Holiday Scams (part 2)

Joe: The last one I want to talk about with these scams is a free gift cards because there’s kind of an interesting story behind this. We have a new employee. He’s he’s working in our L.A. office, but he’s here in San Diego for training. So he’s like two weeks in and these scammers kind of looking at our e-mail address. So they either take my email address or another principal of our firm’s, and they send it to our employees and say, “hey, can you do me a favor.” So that’s kind of the first line of this email or text or something like that. And then, of course, they say, “sure, yeah, what’s going on?” And so it went on and it finally got to this rathole where it was like, “OK I need you to go to the Apple store to get 8 $100 gift cards because I need to send them to a client.” And then it’s like at 7:30 in the morning, this is kind of odd, so maybe this isn’t actually legit.

Andi: Well that e-mail goes to everybody in the company, and all they need is one or two people that say, “Yeah, what do you need?”

Julia: Right. So it’s very similar to the gift card scam. How this works is you get an email saying that you have a free gift card, and if you click on the link, you can make the purchase or you can redeem your free gift card. So again, they’re looking to fish for information, to get your personal information and then sell it, and you want to be careful. And there are also instances where you see gift cards being sold on places like Craigslist or eBay. So these marketplaces. And what happens is, oftentimes, the buyer will buy the gift card with the seller taking your money and then clearing out the gift card of the remaining value before you can go ahead and use it. So we recommend you never buy a gift card from another party.

Joe: Right. I do we have like a bunch of gift cards though if anyone’s interested in buying these. Talk to me about this term porch pirates?

Andi: We talked about attempted package delivery, this is an attempted package stealing, right?

Julia: Exactly. And it’s got a nice alliteration, right, porch piracy. It is a thing where, now that we’re shopping more online, more people are getting their packages stolen because they’re not home to receive the packages. And in some surveys, they say as many as one in three online shoppers has had a package stolen from their doorway. And the interesting thing is, it’s a big enough issue that Amazon is now working with law enforcement, and they recently had a sting operation here on the East Coast in New Jersey, where they put in G.P.S. trackers into the boxes and installed doorbell cameras so that they could track these would-be thieves and they caught a few people. So it is a thing. And we always say prevention is really the best step that you can take to avoid getting your package stolen. Number one, if you’re getting something, you’re ordering something of high value, like electronics, you definitely want to insure that package, and when possible, if you’re going to get a new computer on your iPhone, be home to get that delivery or request signature for delivery. In the event that you can’t be home, ask a kind neighbor or have that package shipped to your office. And then now Amazon also has Amazon Locker which you can use if you’re ordering something off of Amazon, and the vast majority of us are ordering products from Amazon. So you can use Amazon Locker and/or install a security camera in your doorway to hopefully deter these porch pirates. And if that doesn’t work, at least now you have some evidence to file a police report.

Andi: Now I saw somebody online suggesting that you should put things that you don’t want in Amazon boxes and leave those on your porch, but I think that’s probably sending the wrong message. (laughs)

Julia: But that’s a great idea. If you have a lot of stuff you want to get rid of.

Joe: Let’s say if this happens to someone. What do they do? Are you SOL?

Jula: The first thing to do is, you want to check that your neighbors didn’t actually, a well-meaning neighbor didn’t take that package and hold it on your behalf, but that’s thinking very positively. If you think it has been stolen, you want to contact the seller or the retailer right away to file a claim and ask for a replacement. Oftentimes, if you order that product using your credit card, your credit card should offer purchase protection, which is your best bet, because if you try to file a claim with a shipping company, oftentimes they’ll help you try to track down that package, but they won’t reimburse you for the value of that package. And then your last case, and it’s not the best option, is you can always file an insurance claim, but you want to know that filing an insurance claim means that the package had to be of high enough value that you’re going to meet your policy’s deductible.

Joe: So that just sounds like… I have the tracking number. I wait, and then it’s probably, “maybe it’s stuck, it’s the holidays.” So it’s stolen, so I’m waiting another week hoping that my Darth Vader mask comes and my Smurf dolls. (laughs)

Andi: You know, I’m starting to realize that, because Amazon did tell me that something was delivered and I never saw it. I think somebody stole my shampoo.

Joe: See? Well, I can tell by your hair!

Andi: Thanks, Joe.

Joe: So then you’ve got to file a claim and it’s just it’s a hassle. That is a big hassle. But I think if you’ve got an office that would probably be a better bet. Just because you know that someone’s probably there. Hey, speaking of Amazon, let’s let’s end with if you’re reading a fake Amazon review.

Andi: Yeah. How do you know?

Julia: How do you know. Well, the experts we talk to say that because there are so many products being sold on Amazon – there are over 500 million products being sold. So how do you tell what product you should buy? We all use user reviews as a great way to help validate whether we should buy that item or not. And knowing this, many sellers are now using kind of an under the table relationship with reviewers to get favorable reviews so that their products look more attractive to potential consumers. So even though Amazon says that this is not a big problem, the experts we spoke to say that as many as 30 percent of the reviews on Amazon could be compromised. So how you can tell is, number one, if you’re reading the review and it seems like it’s describing a whole nother product. That’s the biggest tell of all. The other way you can check is check the reviewer profile to see if they have a history of writing five-star reviews for products from the same company. And the other way is if a product receives a ton of five-star reviews in a short amount of time, you should be a little bit suspicious. And if the product is so-so or gets bad reviews everywhere else but Amazon, that’s also a potential telling sign that those reviews could be compromised.

Andi: So definitely don’t just rely on Amazon, check those reviews elsewhere as well.

Julia: Exactly. Because almost every site now has some sort of user review.

Joe: With the research that was done, how many people use those reviews as a large basis of making purchases?

Julia; We don’t have exact data of how many-

Joe: Oh come on Julia you can make it up. Just lie to me. (laughs)

Julia: Okay Joe. (laughs) A vast majority of the marketing experts we spoke to, in the past, there was a brand recognition and also price were the main factors that consumers used to purchase products. But these days, with 500 million products, you can’t possibly know every brand that’s out there. And then there are certain products like cable adapters or phone screen cases that don’t necessarily have a market leader, or a brand, a recognizable brand. So in those instances, it’s really easy to have fake reviews for those types of products.

Joe: Cable adapters, are you in the market? (laughs) I’m telling you though just on a personal, I will go nine times out of 10 on the review. If I’m 50/50 on a product, I’m going to go, “all right. This one has more reviews on it I don’t care.”

Andi: So you’re going to start paying more closely?

Joe: No, no I’m not going to spend the time to read it. I don’t care if they’re fake or not. (laughs)

Julia: And Amazon does have a great return policy. (laughs)

Joe: Julia this has been a lot of fun. Where can people find you? Where can people get more information to protect them from these awful people out there?

Julia: (laughs) Thank you. You can get more great insights at ValuePenguin.com and you can follow us on Twitter @ValuePenguin, or you can find me personally @TheJuliaWang on Twitter.

Andi: She is THE Julia Wang.

Julia: There are many other fake Julia Wang’s out there. (laughs)

Andi: So you’ve spotted the scam Julia Wangs.

Julia: That’s right.

Joe: THE Julia Wang.

Andi: Yep, you need to be THE Joe Anderson.

Joe: I don’t think I could ever get to that status. But THE Julia Wang, I really appreciate you hanging out with us today.

Julia: Thank you. It’s been a lot of fun. I hope consumers stay safe out there when they’re shopping.

Joe: So do I.

Andi: With your help, they will. Thank you, Julia.

Coming up next week on Your Money, Your Wealth, we’ve got everything you ever wanted to know about your finances – and everyone else’s, with Lindsey Stanberry, the editor of Refinery29 Money Diaries. Now, remember, next week’s episode, #201, will be out on Wednesday the 26th, instead of the usual Tuesday, since that’s Christmas! Merry Christmas, Happy Boxing Day and Happy Kwanzaa, everybody!

In January, Marcus Garrett from the Paychecks and Balances podcast will give us some Financial New Year’s Resolutions That Really Work. We’ll talk to Chris Hogan, host of The Chris Hogan Show and author of the upcoming book, Everyday Millionaires. And we’ll talk to Devin Carroll from Social Security Intelligence and the Big Picture Retirement podcast. He’ll tell us how sex could save Social Security! Go to YourMoneyYourWealth.com to listen and subscribe to the podcast for free, on demand. Now let’s get to those emails. If you’ve got a money question or a comment or a suggestion, email it to info@purefinancial.com, or you can go to YourMoneyYourWealth.com and click the “Ask Joe and Big Al” button, or you can go to our Facebook page, our Twitter page, and we’ll answer it for you on the podcast.

21:43 – My Roth Conversion Strategy is Complicated by Medicare Premiums and RMDs

Joe: Once again we’re back to the e-mails, bud.

Al: Are we? Got a good one today?

Joe: I do. I got several, and this is from Jim from San Diego. And he writes me often. And he listens to the show, watches the TV show and must take notes because the guy implements everything and it’s right on.

Al: Yeah. So he probably records it and hears it a bunch of times.

Joe: Because we have individuals that maybe have hired us to help them with the initial planning, but they feel that, “hey, yeah, I can do this.” And then they come back to us like two years later and everything is like completely blown up and we have to fix everything and kind of go back…

Al: Yeah. They missed some of the finer points.

Joe: Yes, missed a few steps along the way – but not this sir. Not this gentleman.

Al: Okay. That’s good. That’s good to hear.

Joe: So I’m gonna start with the first one that he just sent me, and then he did a follow-up.

Al: So these are all Jim questions?

Joe: There’s two of them, and there are multi parts, so this could take us a little bit, but I think this is important stuff. “Hi, Joe. Hope you’re well.” Thank you very much. I am doing just fine. “Another question I haven’t seen raised on your morning show. For a while now my wife and I have been trying to follow your advice of converting my traditional IRA to a Roth by filling up our tax bracket, which has usually meant about $30,000 per year. At this point, I have about 25% of long-term savings in Roth and 75% and traditional IRAs. However, with the new tax brackets, there is way more room in the bracket for a couple…” See? He knows. “More potentially than I would like to fill just because of the size of the tax hit. I’m three years from RMDs kicking in and therefore also the Medicare age, which has its own income brackets in terms of adding premiums based on MAGI.” Modified adjusted gross income for you rookies.

Al: MAGI. You like to say MAGI, don’t you?

Joe: I do love saying MAGI, it makes me feel so smart. (laughs) “I can only convert about $20,000 this year and stay below $214,000 of modified adjusted gross income Medicare premium bracket. Going into the next bracket would add about $1,200 a year to my premium. So my question is whether it’s worth paying the higher Medicare premium to be able to convert, say, $50,000 to Roth.” So let’s stop there. What he is referring to is that if you’re paying Medicare Part B premiums, there is a means testing on your premium depending on your modified adjusted gross income.

Al: Right. So what that means is, depending on how much you make, the more you make, the higher your premium.

Joe: So right now if you make $170,000 of modified adjusted gross income or less, your premium that you will pay each month is about $135.50.

Al: Yeah, and that’s for 2019.

Joe: Okay, yes.

Al: And that’s actually based upon your 2017 income.

Joe: Yes. So they go back two years. And then, with the threshold above $170,000 to $214,000, then the premium goes from the $135 to $189.60. And then, once you breach the $214,000, which he’s talking about, it goes from $189 to $270.

Al: So that’s about what $90 a month? Something like that? I think it’s about $1,000 extra per year, I would say.

Joe: Yeah what did he say, $1,200. Okay. So he’s like, “well damn, man, if I’m going to pay $1,200 a year extra in premium, is it worth it?” So he goes on, “my rough calculations,” So I could just imagine this guy’s spreadsheets. (laughs) “Subtracting $50,000 from my traditional IRA should lower my RMD in three years by approximately $2,300. So I’d maybe save about $600 in tax.” So he’s comparing the $600 you’re saving in tax because the RMD reduced by $2,300 of the increased Medicare premiums. “So I guess I don’t know what’s a higher priority, should I make the Roth conversion, should I stop at this point? My wife and I are fortunate that we can live off our pensions, so aren’t really looking to tap into our IRAs. I’d very much value your thoughts.” So it’s a little meat on that bone.

Al: There is a bit. So he’s saying that right now he can do about $20,000 conversion to stay at $214,000 Modified Adjusted Gross Income.

Joe: Correct. But he could go higher. So there are two brackets said he’s looking at. So if you look at the – what is he, the in the 24% marginal bracket at $200-some-odd thousand bucks?

Al: Well, but that’s gross income. So you have to take off the standard deduction or itemized deductions, which we don’t know what that is. But let’s just say his taxable income is $180,000 or $190,000.

Joe: OK, so he’s saying that he’s got a lot more room. So what, the top of the 12% tax bracket is $70,000, the top of the 22% tax bracket was $180,000, and now it’s $315,000 I believe is the top, give or take a couple of bucks, is the top of the 24.

Al: Yeah I think the 22 is what, like $170,000, $175,000.

Joe: Yeah I’m rounding.

Al: But the top of the 24% is $315,000, so let’s just round it to $200,000.

Joe: So he’s like, “holy – I could convert $100,000 and still stay in the same tax bracket.”

Al: That’s right. But he’d have to pay more Medicare taxes.

Joe: And then he’s like, “Well, I don’t really want to pay the tax bite on a $100,000 conversion. I only want to pay the tax bite on $20,000.” Let’s just put the Medicare aside. So my advice to Jim would be, you’re going to pay the tax regardless. It doesn’t matter how big of a check that you’re going to have to write today or tomorrow. If you’re going to convert in the bracket, if you want to fill up the bracket, that 24% tax bracket? Guess what, Jim, it’s going to turn back to the 28% tax bracket and you’ll probably fall into alternative minimum tax because of what bracket that your pension, Social Security, and everything else is paying you.

Al: Yeah and that required distribution.

Joe: And then now you’ve got an RMD on top of that. So my advice would be to convert to the top of the 24, get as much money out of that thing at that low bracket. Pay the tax. Don’t try to monkey around, “Well, I don’t want to really pay that much tax right now.” Well, you’re going to pay a lot more tax later. The sooner you get the money into the Roth IRA, the better off you’re going to be. So that would be my advice, bottom line, right now. Plus, the market is a little bit shaky, let’s say it’s down 5%,10%, well, you convert now, guess what? That’s another 5 or 10% discount that you’ve got in the money in the Roth that you’ll never touch. It’s going to your kids. I would do that now. Now we can argue about the Medicare premium.

Al: Sure. Because if you really want to do this properly and correctly, you take a look at the extra Medicare taxes that you’re going to have to pay, actually, in a couple years, but go ahead and compute it now, add it to the extra taxes that you’ll pay, and come up with that total. divide that into your Roth conversion to look at your effective rate. Now, I just would consider that like an extra tax, and if it’s still a lower tax rate than you’re going to be in, then by all means, go ahead and do it.

Joe: And I think if you look at the added premium that he’s paying in Medicare taxes, where he will be, he will be in a higher tax bracket once he turns 70.

Al: Yeah. And let me explain how the math works, which is, if he does an extra $20,000 conversion, or let’s just say he does an extra $10,000 conversion, make the math really easy. And then he has to pay an extra $1,000 in Medicare tax? Well, that’s an extra 10% tax. That’s pretty high. But if he does an extra $100,000 and pays the extra $1,000, that’s a 1% extra tax. Now it’s not that simple, because there are other breakpoints, but you get the idea – if you’re trying to maximize this, maximize the 24% bracket first, and then look at the extra Medicare cost as an extra tax, and if it still makes sense from a tax bracket standpoint, by all means, go ahead and do it.

Joe: (calculating) $189, 3-5-2, 163, 12 times… So, if he converted to the top of his bracket, to the $315,000, he’s going to pay an extra $2,000 in Medicare premium tax.

Al: Yeah. And he converted over $100,000 to do it. So that’s an extra 2% tax, which, if you look at it that way it doesn’t seem that bad.

Joe: So then you’re paying 26%.

Al: So instead of 24 plus 2, 26, if you’re going to be in a 28 to 35% later, then obviously that makes sense.

Joe: Big Al. God, I love Big Al. (laughs) He’s got a big brain. All right, we got a follow-up question. Haven’t read this one yet. OK, “a few things I realized in this issue of staying below Medicare income brackets versus Roth conversions, if I convert $50,000, it would bump me into a higher Medicare bracket, the $214,000 through $267,000, and add about $1,200 to Medicare premiums, but save on RMD taxes in three years of about $600. If I only convert $20,000, I stay in a lower Medicare bracket, save the $1,200 in premiums, but only save about $230 in RMD taxes in three years. So the difference in tax savings in three years of converting this year 50, versus 20, would be approximately $350 versus the $50k converting costing $1,200 more in Medicare premiums next year.” Holy buckets!!

Al: Wow. (laughs)

Joe: “I hope this is clear enough.” Jim, this is not clear at all!

AL: You’ve done some analysis, I appreciate that.

Joe: This guy is just grinding it out! Jim! Go play golf! I’m gonna come to your house, I’m gonna grab you, we’re gonna grab a couple of cold beers, and we’re gonna play golf, and I’m gonna get you off the computer looking at the stupid Medicare premiums.

Al: Well, lemme answer one thing simply, and that is, if it makes sense to do a Roth conversion, max out whatever bracket you’re trying to get into to get the maximum value. And we believe that 22 and 24% is a better bracket to look at than the Medicare rate, the different levels. But if you only, in his case, if he only wants to convert, I don’t know, $50,000 and $50,000 throws him over, then convert $45,000.

Joe: “Basically, is it better, generally, to convert more to Roth each year and pay more for Medicare or just keep funding Roth only to limit the Medicare brackets? Many thanks for your advice.” (sigh) Maximize the conversions, the conversions, yes, is better in our opinion. We’re at all-time low tax brackets. And I know Jim’s situation a little bit better than most emailers. So I can… inequivocally?

Al: Unequivocally?

Joe: Is that a word? Dammit! I was so close. (laughs) Unequivocally tell Jim, absolutely convert to the top of the bracket. I understand it’s going to be a fairly large check that you’re going to have to write to convert to the top of that giant bracket, but you’re going to pay the tax, regardless. Here’s the problem. People look at their retirement accounts and they say, “I have a million dollars in my retirement account, 2 million dollars in my retirement account, 500 grand.” They don’t have that much money. It’s less than that because of the taxes that are coming out.

Al: So they got $500,000 but they can’t spend it all.

Joe: No. But then they say, “well Joe, if I have $500,000 and if I convert, I’m gonna have to pay tax. So that tax money, I’m losing growth on the tax money.” That makes sense, right?

Al: Yeah, it sounds good until you do the math.

Joe: You got to do the math. It doesn’t matter, because if I keep the money in the IRA and it continues to grow, which is great, what you want it to do, but guess what? All of that growth is subject to tax as well.

Al: So you have more money in the IRA, but you have more taxes. So if tax rates always stayed the same and we’re flat, without other factors, it’s same-same.

Joe: Right. Convert the money. Get it out at the 24% tax bracket. Yes, I understand that you’re going to pay a little bit more Medicare tax. But if you include that in the overall equation, I believe it’s still going to be in a lower tax bracket where you’re going to be, even if tax rates stay the same. You’re RMDs plus your pension, and if you pushed out your Social Security like you probably have, as you’re listening to our advice over the last 10, 11, 12 years, you’re going to have very large fixed income. This money is not necessarily for you, it’s for your heirs, or emergencies, or things like that. Just think, if you want to buy a larger purchase, you could pull it from the Roth and not blow yourself up even into higher brackets. I would take advantage of these rates. You have a few years to do it, if you don’t want to maximize the bracket, if you want to kind of tinker around, it makes no sense to do that. The 24 is the 24. If I’m going to convert, at least take advantage of the whole thing.

Al: Yes. So let’s just say your taxable income, it’s a couple hundred thousand dollars and you’re married. You can convert $115,000, we’re going to round it to $100,000. You can convert $100,000 and stay in that 24% bracket. So you know your tax rate is 24%. Then it’s like, well wait a minute I got to pay more Medicare, and then you look, well, how much more Medicare am I going to have to pay? Actually, it’s in two years from now. But go ahead and add it. So look. OK, I gotta pay an extra $2,000 in Medicare. Add that to the to the $24,000 tax. Now you got to pay $26,000 tax, or 26%, and what am I going to pay when the tax rates revert back to what they’re going to in 2026? Well, I’m going to be in the 28-35% bracket depending upon if I’m subject to alternative minimum tax. 26 sounds like a better rate than 28 or 35. Even with the extra Medicare tax.

Joe: Right. The faster the money goes in the Roth, then you have the compounding effect of tax-free. So if I’m like, “Well let me just put 20 here, 30 here, 20 there, and then kind of mess with these Medicare taxes, I don’t know. If the market is flat and down this year, you do it now, and all of a sudden let’s say next year the market’s up 5%, 10%. You’ll be pretty damn happy that you converted that much.

Al: Yeah, and there’s a whole lot of reasons beyond the tax rate. Like for example, with a Roth IRA, maybe you structure your investments where you put your highest expected rate of return assets in the Roth, and so then you get to keep more of that growth. So that’s number one. Number two is, if you have a year where you need a lot of extra money and you don’t have another source, you can pull it out of the Roth IRA. Keep yourself out of higher tax brackets. And I hate to say this, but all married couples, for the most part, one is going to survive the other, and the survivor now is in a single tax rate. The tax brackets are much higher for a single person.

Joe: There are no RMDs in Roth IRAs, right?

Al: Correct. I didn’t say that, but that’s true too.

There isn’t much time left in 2018 to figure out if a Roth conversion is right for you, so if you’re on the fence too, do what Jim did and email info@purefinancial.com ASAP to get some input from Joe and Al. For an even more comprehensive assessment of your financial picture, visit YourMoneyYourWealth.com and click the free assessment button to schedule just that – a financial assessment with a CERTIFIED FINANCIAL PLANNER from Pure Financial Advisors. There is no cost or obligation, but there also isn’t very much time left in the year – sign up for a free assessment now at YourMoneyYourWealth.com. Now, let’s answer some more emails.

37:55 – I’m Doing a 1031 Exchange But the Property I’m Buying Is Priced Too High. What Are My Options?

Joe: Robin in San Diego, she goes, “Hi, I have a question, please. I’m doing a 1031 exchange and the property I’m supposed to be buying is priced higher than I would like to pay after seeing the inspection and finding out more about the area etc. Other than backing out and paying the tax is there any other option at this point? Alan, what say you?

Al: Yeah her qualified intermediary says no. So let’s chat about that briefly. So when you have a rental property and you sell it, you can actually buy another property and defer the gain into the new property, as long as you follow the rules, and the rules are simply this: after you sell, at the close of escrow, you have 45 days to identify three potential properties you want to buy, and you have six months after closing escrow to actually buy one of those three. So those are the rules. The property needs to be equal to or more expensive than the one you’re selling. So, in this case, she probably found one property, maybe she only identified one property. I don’t really know. So I’m gonna assume – well, I’ll answer two ways. If she’s within the 45 days, no harm, no foul. Just go find three other potential properties and list them down with your qualified intermediary.

Joe: So let’s say if she’s 30 days in, she still has 15 days to identify three other properties.

Al: Three targets and the qualified intermediary is just a third party that holds your money. You’re not allowed to hold the money.

Joe: And that’s 45 days of close of escrow.

Al: Close of escrow. So escrow closed, escrow company would have sent you a check for $200,000, let’s just say. But it goes to a qualified intermediary, to them instead of you. Because if it comes to you, it’s taxable. So they’re holding your money. You have 45 days to identify three properties. So if it’s within that period, just go to the intermediary and identify some other properties. Because the Qualified Intermediary says no, I’m going to assume it’s after the 45 days. And so at that point, legally all you can really do is buy one of the three, or if you’ve only identified one, buy that one. And if you don’t do that, it’s a failed exchange. So you end up having to pay the tax.

Joe: How big of a gain would you suggest someone look at a 1031 exchange to make it worthwhile?

Al: Yeah, good question.

Joe: You know what I mean? You can just do an outright sale, you made a little bit of money on it, and just walk away, pay the tax.

Al: I guess it if it were me, and I don’t really know any of the particulars, but she says she’s paying the tax of $28,000.

Joe: don’t the fees and costs and everything else going through that probably is half that?

Al: Plus the risk of owning more rental properties, and don’t get me wrong, I love rental properties. I’ve done three 1031 exchanges myself, but if I was only trying to get out of $28,000 tax I might think twice. It’s not worth it. Now if if all she got was $35,000 and she has to pay 28? We don’t really know the rest of the numbers, but in general, that seems like a low enough number that why go through all that hassle.

Joe: Right. There are costs and fees involved with setting all this stuff up.

Al: Right. Now there is something brand new with the tax law called opportunity zone, and I’m not suggesting it. I’m actually not even recommending it, but it is available. So this is brand new with the tax law, meaning that you don’t have to do this 45 days or six months. You can just take your money out of the qualified intermediary and hand it over to a fund that actually invests, in general, in real estate in a depressed area. They call it an opportunity zone, they’ve been designated by all the states. So each state has one. And if you do that, then you don’t have to pay the tax right now. You do have to pay the tax when you actually sell that property or if you hold it long term – let me explain. So if you hold the property for at least five years, then 10% of that gain, in this case, $2,800 dollars is tax-free. If you hold it for seven years, another 5% is tax-free, another, what, fifteen hundred bucks, let’s call it. And then if you hold it 10 years, you got to pay the rest of the $28,000 at that point. But if there’s any increase in the asset that you purchased in the opportunity zone, after that point, it’s all tax-free. So that is possible. I’m not recommending it to be honest, because there are all kinds of risks involved with those kinds of investments. But that is possible.

Joe: 28K. What would you say, what’s the number – $100,000 in tax? $150,000?

Al: Depends on the person, right? I mean for someone like you with your big net worth, yeah. That’s like a drop in the bucket.

Joe: Oh whatever. $28,000… (laughs)  It sure seems like the fees and costs are almost half that!

Al: It depends more on what you’re getting out of it. Like, let’s say she’s going to get a couple hundred thousand dollars out of it. I would pay the $28,000 and move on.

Joe: Yes. That’s what I mean.

Al: If she’s only going to get 50 grand out of it, because of depreciation and all kinds of stuff. Maybe there’s high debt on it, and so she’s gonna pay half of it in taxes? Maybe she might think twice.

Joe: Yeah, okay. I don’t know. But even if there’s no net equity in there because of depreciation recapture, I don’t know. Because people will want to do certain things to avoid a tax. And it’s like that just seems like such a hassle and everything, you’re going through hoops. How about this. There’s a there’s a gentleman that’s going to move to Rhode Island, that hates Rhode Island, that doesn’t want to really live there, to save like $50,000 in tax on his home so he can use the 121 tax exclusion.

Al: (laughs) Yeah. Now we hear stuff like that all the time.

Joe: He lived in the home, then he used it as a rental, and then now his time is back up and he wants to live back in it so he can sell it and save the money in tax to call it a primary residence.

Al: Yeah, or likewise, I mean I’ve had people that had a pretty big transaction, maybe a sale of some kind of business or something. Maybe they sold their business to a public company, got stock, now they want to move to another state like Florida, Nevada, Texas where there’s no state tax, and then they’ll say, “OK I want to move to that state so I’ll avoid the state tax.” And state tax in California 9.3, 10.3, 11.3 – let’s just say it’s 10% – $100,000. So I’m asking, “so you want to move to Nevada to avoid $100,000?” “Yes. What I want to do.”

Joe: You mean let’s say if it’s a million dollar gain?

Al:  Yeah. A million dollar gain. So yeah $100,000 tax savings. So then they say, “what do I need to do?” I say, “well, you need to actually move there, and really move there, and stay there.” And avoid – The Franchise Tax Board in California, they can audit you four years after you file, and if you move back to California by the time they audit you, they’re likely going to say that was never your intent to move. You did this for tax reasons. And they’re going to get the money anyway. So you probably have to consider living in Nevada for five years for $100,000. So if that’s worth it to you – it wouldn’t be for me. Sorry, Nevada, it wouldn’t. But if that’s worth it to you, go for it. You can’t fake it. You really actually have to move.

Joe: Well there’s fraud among us everywhere, Alan.

Al: Yes.

Hey, this week on the Your Money, Your Wealth TV show, Joe and Big Al are spilling some Social Security Secrets. Watch online at YourMoneyYourWealth.com, and be sure to subscribe for new TV episodes every Sunday – you’ll see the subscribe link right on the episode page. While you’re at YourMoneyYourWealth.com, click the Special Offer button and download Joe and Big Al’s Social Security Handbook for free. Learn how Social Security works, who is eligible, how benefits are calculated, when to collect, different types of benefits available, how Social Security is taxed, and any recent changes that might affect you. The Social Security Handbook is free for you to download, just click Special Offer at YourMoneyYourWealth.com. We have one more email for you…

45:45 – What Should Be On My Financial Bucket List Before Retiring?

Joe: This is John from Virginia. “Joe and Al, thanks for the podcast.” You’re welcome John. “I enjoy listening to it each week as I exercise.” I wonder if he’s doing some squats right now. (laughs)

Al: Maybe. Sit ups, pull ups.

Joe: Chest back and thighs? Chest and tris?

Al: Yeah, cardio.

Joe: “Thankfully it takes my mind off how much I hate exercising.” Maybe do some lunges, John.

Al: (laughs) I don’t think we’ve ever had that.

Joe: Get a little deep stretch.

Al: It’s how it’s how you can exercise without pain. Listen to Joe and Al.

Joe: Exactly. Maybe we have another business.

Al: Yeah sure we do a little exercise video with our podcast in the background?

Andi: Oh boy.

Joe: I think we could. (laughs) Thanks for the idea, John. So he’s got a few different questions here. “As someone enters their last few years of work before early retirement (I’ll then be in my mid-50s.) what bucket list financial items would you recommend they have funded before pulling the plug on full time work?” All right. So he’s looking for, he’s got a few more years of work, he’s thinking “is my everything set before I pull the ripcord here?” Very good question. John sounds like a very responsible individual. “Number one, having low 3% withdrawal rate from my investment portfolio to support spending needs.”

Al: Yeah. So he’s already got these four items. So number one he’s like, “All right. My distribution rate is going to be less than 3%, even lower when Social Security starts.” So when Social Security kicks in it’s probably going to be one.

Al: Yeah. So that’s a great start. I would say, at age 58, that’s probably the target – below 3%. So good job. That’s even without Social Security.

Joe: “Eliminating all debt including the mortgage.” Check those two things off your bucket list, John you are sitting pretty good. “Having completed college expenses for the kids.”

Al: Okay, I like that.

Joe: Jeez, John. Man. “Having three years of spending set aside in cash and C.D.s for the use in years that the market suffers a big downturn.”

Al: OK a lot of safety.

Joe: Jeez. (laughs) Impressive. “I expect to have a total of about $150,000 available after tithing, taxes, and saving about 20% into our retirement accounts over the next three years.” Over the next three years, so a total of $150,000 available. So OK. “Are there any additional bucket items that come to mind that we should address with this money? Long-term care is not specifically addressed in our financial plan, but I think we can mathematically self-insure for that possible expense. Thank you for your thoughts and comments and keep up the good work.” Well John in Virginia, you keep up the good work, my friend.

Al: Yeah fantastic. Great profile.

Joe: What do you think, Al? He’s got $150,000 over the next three years. He’s got a portfolio that is gonna be drawing about 3%, and then when he starts claiming Social Security, it’ll be less than that. He’s got about 3 years of spending set aside just in case the market implodes, he’s got some cash. Doesn’t have any debt. College is paid for. What do you think?

Al: Yeah, he’s in great shape. I got a couple of thoughts that come to mind, I guess. So for someone like this with a 3% distribution rate before Social Security, and then much lower afterward you’re going to have excess cash flow probably for the rest of your life. Which means you’ve got some opportunities. If you want to increase your cash flow, great, you can. If you want to give more to charity, you’re already tithing, but you could give more to charity. You want to set aside more for the kids? Or maybe a combination of all three? It’s all available and I think in a case like this, when so many things, John, you’ve done right. It’s more like, “OK, so I’ve got all the big bucket items checked. But now what’s possible? What kind of lifestyle can I live if I want to, or how much more could I give to charities if I want to.” I would take a look at that to start.

Joe: I want to know how much you weigh, John.

Al: Because he’s working out a lot from our messages?

Joe: Well maybe he just gets a really good personal trainer. So then he enjoys exercise a little bit more. (laughs)

Al: (laughs) That could be. I have another thought too.

Joe: I’ve got a couple. He can fine-tune his overall strategy a little bit. Depending on what he’s looking at doing. So, okay, well he’s going to have a 3% burn rate out of his overall accounts. But what does that really mean? How much money is he spending? How much is fixed income? Does he have a fairly large pension? And then he only has to draw a little bit from the overall retirement accounts? He’s 50. He doesn’t need that money. So if it’s all buttoned up in a retirement account and he’s 50 some odd years old and he’s only taken one to 3% of the portfolio? By the time he’s 70 and a half that thing is going to implode on him. So he might look at trying to maneuver his assets around and using that $150,000 over the next couple of years as excess cash flow to help maneuver the assets by paying maybe a little bit extra tax to get more money into let’s say a Roth.

Al: Yeah I agree with you. Especially with the lower tax rates that we have this year. And not knowing your situation, we don’t really know, but chances are if you do have a pension, Social Security, with your potential required minimum distributions, you may be in a higher tax bracket than you think in retirement and starting to get some of that converted. Maybe you do some now while you’re still working and then you accelerate that when you retire so that by the time you hit 70 and a half, you’re in a much better tax situation.

Joe: And if he’s tithing 20%, maybe you load that thing up for a couple of years by doing something like a donor-advised fund. So let’s say that tithing is ten thousand bucks. Well maybe you put $30,000 in a donor-advised fund and then dole that out over the next three years, but you create a very large deduction this year by doing some more tax planning as we have these very low tax rates. So I think, all in all, John, you’re doing a phenomenal job. I think you’re doing what’s right and knowing what to look for, but now it’s just fine tuning this. It’s just doing, I guess, those extra crunches or lunges where you really don’t want to. (laughs)

Al: Well one other quick thing Joe, and that is a lot of times that people have a really good situation they end up with more money at end of life than they thought. So think about your estate plan.

Joe: Yes. So give less to Uncle Sam and more to the people that you want the money to go to. All right. That’s it for us today. For our wonderful producer, Andi Last thank you very much, Andi.

Andi: Thank you, sir.

Joe: That was very well done today. Really appreciate everything you’ve done.

Andi: (laughs) Thank you, Joe.

Joe: Big Al Clopine, I thought you did a phenomenal job as well.

Andi: And I love that tie, Al.

Al: Oh you do?

Andi: I do.

Al: I get lots of compliments on this tie.

Joe: I don’t really care for the tie at all.

Al: It’s a black tie with roses on it.

Joe: Reminds me of like a couch that my grandmother had. (laughs)

Al: I suppose. But it does look good with this shirt don’t you think?

Andi: It does. It’s my favorite combination you wear.

Al: See, I’ve gotten that by several the ladies here at Pure.

Andi: I think that counts more than what you think, Joe. (laughs)

Joe: All right, there ya go. Big Al’s got his mojo on. (laughs)

Al: I don’t listen to you. (laughs)

Joe: All right. We’ll see you guys next week. The show is called Your Money, Your Wealth®


Special thanks to today’s guest, Julia Wang – visit ValuePenguin.com, a resource to help you make better financial decisions, big and small.

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